CHAPTER 7

REVOLT AT CULVER CITY

“A HELL OF A MESS”

By 1953, Hughes Aircraft was into its fifth year of phenomenal growth. Its sales to the military were nudging toward $200 million a year. Annual earnings had topped $5 million. The work force totaled more than seventeen thousand. Production efforts of the company had moved beyond fire-control systems for all air force interceptors to similar units for the navy’s Banshee fighters and an array of other sophisticated and classified electronic armaments, including the Falcon, the world’s first guided air-to-air missile. In addition to the sprawling 1,300-acre Culver City site, the company had built a plant just south of Tucson to manufacture the Falcon missile. The plant in Arizona created a controversy even before it opened.

Hughes had been warmly welcomed to Tucson in 1951 when he announced plans for a multimillion-dollar defense plant that would make the city “the electronics center of the world.”¹ Anticipating jobs and increased tax revenue, Tucson accommodated Hughes by spending $459,000 for new streets, sewer and water lines, and a railroad spur. But just as the plant was about to open, Hughes quietly negotiated a deal. He sold the installation to the Defense Department and took back a lease to operate it for the air force. Tucson exploded in indignation. At a stroke, about forty-seven square miles—30,000 acres—had been removed from the Pima County tax rolls. “After going all out to help the Hughes company locate in Tucson by providing every service it requested,” complained an angry Arizona Daily Star, “the people of Tucson are disappointed to wake up and find that instead of a privately owned industry, they will have another government-owned, tax-exempt installation, operated by private enterprise.”² There were calls for a congressional investigation and redress from Hughes before the controversy subsided. As in the Nevada land deal, Hughes had once again sought and received preferential treatment from government agencies, then reneged on his end of the bargain.

For General George and his colleagues at Culver City, the decision-making process was not getting any easier. From 1951 on, Hughes was almost always inaccessible in Las Vegas as he rotated among suites at the Desert Inn, the El Rancho Vegas, and the Flamingo. In truth, despite the resistance of Ramo and Wooldridge, Hughes still hoped to move some of his California operations to Nevada. When he told Bill Gay to prepare for a move to Las Vegas, Gay stalled, expecting that his boss’s whim would pass.³ But Hughes kept the pressure on.

Las Vegas held other charms for Hughes aside from a favorable tax structure. He liked the glamor and gaudiness of the town; he enjoyed prowling the city at night, cruising the casinos and hotels in search of attractive young women available for an evening’s dalliance. The job of procuring the women usually fell to one of his aides. One former assistant explained the process: “Howard would see a girl he liked. He would motion to one of his men to see if he could get her for him. The aide would approach the girl, and if he succeeded in getting her to agree to join Hughes at his table, he whipped out a disclaimer and asked the girl to sign it before joining them.”⁴

So attracted was Hughes to Las Vegas that he leased a modest five-room bungalow adjacent to the Desert Inn. Known as the Green House because of its color, it stood on the grounds of the Sun Villa Motel, now the Bali Hi Blair House Motel, on Desert Inn Road. It had a living room, a screening room, a kitchen, two bedrooms, two bathrooms, and a garage, where aides put the communications equipment. Before he moved in, Hughes had a special crew from Romaine go over the Green House, installing window air conditioners and caulking doors and windows to make the house airtight against dust and pollen.

The Green House was Hughes’s main residence for about a year in 1953-54, but eventually, as Gay and everyone else at Romaine Street had anticipated, he abandoned the plan to make Las Vegas the capital of his empire. Even so, he wanted the Green House in a state of readiness, and he gave Gay a detailed set of instructions for “sealing” it against the day of his return. “He wanted everything there beautifully preserved just the way it was, when he came back,” recalled Nadine Henley.⁵ Gay secured doors and windows with tape, then painted over the tape with a sealer.

Hughes never returned to the Green House, although he did continue to lease and later own it until his death. Two weeks after he died, officials of the Hughes organization opened the house and found a twenty-two-year-old time capsule. In addition to chairs, tables, divans, linen, half-used bars of soap, and other standard household furnishings, the Green House contained an electric Westinghouse refrigerator—still running—two newspapers dated October 13, 1953, and April 4, 1954, keys to Room 186 at the Flamingo Hotel and Room 401 at the Hotel Miramar, twin beds with soiled sheets, some Sahara casino gambling chips, eight telephones in five rooms, a letter from “Jane to Howard” dated December 5, 1952, a script titled “Son of Sinbad,” two yachting caps, a 1953 appointment diary believed to belong to Jean Peters, a box of Christmas decorations, and a fruit cake.⁶

THE WOMEN IN HOWARD HUGHES’S LIFE

With Marian Marsh (1934). Wide World Photos

Billie Dove (early 1930s).

With Ida Lupino in Palm Springs, California (1935). United Press International

With Ginger Rogers in New York (1936). United Press International

Terry Moore (late 1940s). United Press International

Katherine Hepburn (early 1940s).

With Ava Gardner in New York (1946). United Press International

During the time he lived at the Green House, Hughes often let urgent appeals for action from Culver City go unheeded. Authorization to pave the grass runway, which turned into a quagmire after rain, was two years in coming. But while Hughes was generally unavailable to his executives at the aircraft company, he was talking overtime to certain Hollywood actresses, among them the shapely Terry Moore. As Earl Wilson, the Broadway gossip columnist, disclosed in the fall of 1952, Hughes telephoned Germany almost daily “to talk to beautiful and beautifully stacked Terry Moore, twenty-two, the ex-wife of football hero Glenn Davis. They talked, sometimes for two hours. And friends who overheard her talking to him in a Munich dining room think they might get married after her divorce becomes final in April.”⁷ Two years earlier, when Miss Moore had left her husband of three months, Glenn Davis, the Los Angeles Rams halfback, rumor had placed Hughes in the rift. Miss Moore had walked out of the couple’s Lubbock, Texas, home and returned to her mother’s home in Los Angeles, charging, among other offenses, that Davis had ridiculed her acting ability. When Davis arrived to attempt a reconciliation, Hughes also appeared and in a sporting gesture offered to shake hands. But Davis became incensed and slapped the outstretched hand away, sending a startled Hughes stumbling backward over an ottoman and onto the floor. When the former Army All-American approached Hughes as though to kick him, Terry Moore’s mother threw herself over the prostrate Hughes, who quickly scrambled to his feet and fled the house.⁸

Such distractions did interfere with the orderly conduct of business required by Culver City. In the past, these eccentricities had been tolerated, but by 1953 Hughes’s quirks were threatening important national-defense work. With the Soviet Union on everyone’s mind, the fear grew at Hughes Aircraft that production schedules could not be met because of Hughes’s antics. Key executives and scientists who had once thrived in an environment that offered maximum freedom for research now faced increasing interference from their erratic employer—an annoyance magnified by two other irritants.

First, in any ordinary company, stock options would have been part of an executive salary package. But Hughes Aircraft was no ordinary company. From the day he took control, Hughes had insisted on 100-percent ownership of his business enterprises. Now, with his key executives pressing hard for a share of ownership in the aircraft company, Hughes stalled for time, dropping hints that stock options would be forthcoming to those who were patient. By 1953, after several years of such reassurances, that patience was wearing thin.

The second irritant was Noah Dietrich, Hughes’s stocky, cold-eyed financial vizier, the “iron potentate” of the empire.⁹ In the early 1950s, Dietrich, by then executive vice-president of Hughes Tool Company, had moved back to Los Angeles after fifteen years in Houston where he had monitored the operation and consolidated his position as the second-most-powerful man in the organization. Dietrich later said of his authority, “No member of the board of directors of Hughes Tool Company was ever permitted to make, nor did any director ever make any decision other than on routine matters. The members of the board acted as they were instructed to act by me—under direct orders or following a policy set by Howard Hughes, or under my orders on my own initiative….”¹⁰ Dietrich, now in an office at Romaine Street, prepared to confront the Culver City troublemakers.

Dietrich had always scrutinized the books of Hughes Aircraft with special care. At first, in the 1930s, he had viewed the company as an expensive annoyance. To one responsible for preserving and enhancing Hughes’s fortune, there was no greater threat. The aircraft company routinely amassed huge deficits made good by the tool company. Twenty years later, of course, everything had changed. Although still a division of the tool company, Culver City was more than paying its own way, and had already passed the oil-tool division in revenues. Dietrich, who should have been pleased by the sudden turnabout, instead saw only a rival, a direct threat to his control over the empire.

To forestall such a turn of events Dietrich began to assert himself in ways that infuriated Hughes Aircraft’s executives and scientists. He haggled over the company’s financial requests, refused to authorize adequate working capital, withheld annual executive bonuses, and conducted annoying petty internal investigations. When one inquiry disclosed a bit of sloppy paperwork, a Dietrich underling hinted that perhaps some parts were being illegally sold off the assembly line. General George took this as a personal affront and exploded. “What you have just stated is in fact an accusation of fraud, lack of integrity, and deceit on the part of certain principal executives.”¹¹ The charge was withdrawn, but the bitterness remained.

Alarmed over Dietrich’s strong-arm tactics, the company’s four vice-presidents—George, Thornton, Ramo, and Wooldridge—sent Hughes a memorandum accusing Dietrich of trying to seize personal control of Hughes Aircraft without regard for the consequences. Warning Hughes that deliveries to the air force might be jeopardized, they asked for an immediate meeting with him to resolve the conflict. No answer came. The executives sent Hughes a second urgent communication—they could no longer be responsible for meeting the company’s military commitments and they intended to so notify the air force. Faced with this ultimatum, Hughes gave in and agreed to meet his rebellious executives.

On the evening of September 20, 1952, Eaker, George, Thornton, Ramo, and Wooldridge met with Hughes in a bungalow at the Beverly Hills Hotel. Hughes appeared in a conciliatory mood. He told his executives that no real breach existed between him and them. They insisted that Hughes curb Dietrich. The issue was not simply an intracompany squabble; defense work, they argued, was a public trust. Hughes made no response to their appeal for a clarification of authority, contending matter-of-factly that internal fights occurred in all companies. At one point in the discussion, Hughes, alarmed at the united front of disgruntled executives before him, accused them vaguely of “Communistic practices” by challenging him collectively.¹² In the end, nothing was settled.

A few days later, Thornton, Ramo, and Wooldridge flew to Washington to advise the Defense Department of the growing crisis at Culver City. General George later described this as an “early warning” that a blowup was imminent.¹³ But still the discontent bubbled just below the surface, held in check by one possible solution.

Late in 1952, the word went out—leaked by Hughes himself—that he might sell his aircraft company if the price was right. The mere rumor was music enough to march a parade of executives from various corporations and banks through the Culver City plant. Representatives of Westinghouse and the Atlas Corporation, Convair, Lockheed, and a New York financial syndicate all expressed interest. The aircraft company’s executives and scientists were vastly cheered by this prospect, confident that any new owner would be more responsive to their needs. Everyone should have known better. In the end Hughes rejected all offers. A knowledgeable government official put it succinctly: “I never really thought he was interested in selling. My impression was he was more interested in finding out what it was worth.”¹⁴

With the collapse of this prospect, and in the face of more harassment by Dietrich, the revolt at Culver City broke out. On August 11, 1953, Ramo and Wooldridge, who had together played such a large part in the rise of Hughes Aircraft, resigned. Their loss was a severe blow, for Ramo and Wooldridge soon announced the formation of their own company specializing in military electronics. The Ramo-Wooldridge Corporation, financed by Thompson Products, Inc., of Cleveland, went on to supervise the development of intercontinental ballistic missiles for the air force, and eventually became TRW, Inc., one of the giants of the space and technology industry, with revenues surpassing those of Hughes Aircraft itself.

 

Meanwhile, in Washington, the air force watched the crisis at Culver City with undisguised alarm. The Pentagon had long anticipated that the differences between Hughes and the aircraft company managers might erupt into a raging internal battle that would jeopardize the company’s deliveries to the air force and imperil national defense. The air force could not let that happen. Hughes Aircraft was no longer Howard Hughes’s private plaything, but a quasi-public institution, a linchpin in the nation’s air defense. In five years, Hughes’s empire had been transformed from one totally dependent on private dollars to one increasingly nourished by federal tax dollars. The change was subtle and virtually unnoticed at the time. To most Americans, Hughes still epitomized the rugged individualist, a throwback to the nineteenth-century entrepreneur who had nothing but contempt for big government. In fact, the Hughes empire and the federal government—the Defense Department in particular—had formed a partnership that would last and grow more mutually satisfying for the rest of Hughes’s life. If Hughes had failed to grasp that point by 1953, the same could not be said for the Pentagon. A concerned secretary of the air force, Harold E. Talbott, flew to Los Angeles for a showdown with Hughes on September 18, 1953.

Talbott’s ties to aviation predated even those of Hughes. In the spring of 1916, Talbott’s father and two other men had established the Dayton-Wright Company, taking over what had been the Orville Wright Company. Young Talbott, then only twenty-eight years old, was named president, and Orville Wright became vice-president and engineer. During the First World War, they had employed twelve thousand people and turned out thirty-eight planes a day, providing the Talbotts with a healthy fortune. The energetic Talbott went on to invest in, and exert influence over, a variety of major corporations—he was an original investor in Chrysler—served as director of aircraft production for the War Production Board during the Second World War, and became one of the most effective fundraisers for Thomas E. Dewey and Dwight D. Eisenhower. He was clearly not a man to be trifled with.

Over the years there have been several accounts of Talbott’s showdown with Hughes. Some of the details vary, but it is generally agreed that the air force secretary gave Hughes an ultimatum: “You have made a hell of a mess of a great property, and by God, so long as I am Secretary of the Air Force you’re not going to get another dollar of new business,” Talbott told Hughes.¹⁵

With the Red menace still on his mind, Hughes responded: “If you mean to tell me that the government is prepared to destroy a business merely on the unfounded charges of a few disgruntled employes, then you are introducing Socialism, if not Communism.”¹⁶

Talbott confirmed that he was pondering cancellation of all Hughes’s contracts with the air force—a move that would effectively put the aircraft company out of business—and that he meant to turn the Hughes plant in Tucson over to another contractor. Hughes pleaded for time to straighten out his chaotic management. Talbott relented. He would give Hughes ninety days, and not one day more.

The situation at Hughes Aircraft could not have been worse. A sadder, but wiser General George was convinced that it was impossible to deal with Hughes. Dietrich had fired the comptroller of the company without notifying George beforehand and announced that he was moving his own office to Culver City, presumably to take personal charge. With the last vestige of his authority torn away, George turned in his resignation, paraphrasing Winston Churchill—“I do not intend to preside over the liquidation of the Hughes organization, and so help me God, if present policies are persisted in, the liquidation is inevitable.”¹⁷ George’s top aide, Charles Thornton, also resigned, and, along with Roy M. Ash, another executive who later left the company, went on to build Litton Industries. These were serious developments, but not so crippling as the news in late September that the aircraft company’s entire scientific advisory council, numbering more than two dozen senior scientists, intended to resign. The revolt that the air force had feared was now in full flower.

Hughes could always find a new executive or two to replace George and Thornton, but if the people responsible for producing the company’s products started walking out, he was in serious trouble. “I think Hughes realized that he had a real problem there with those engineers,” one government official recalled. “You can lose managers all right, and if the rest of the organization is pretty well functioning, why you can get by. But on the threat that the whole technical management staff was going to pull out, man, that was big news.”¹⁸

The threat brought another anxious visitor to Culver City, Roger Lewis, the assistant secretary of the air force in charge of materiel. Like Talbott, Lewis had spent all of his working life in aviation. After his graduation from Stanford University in 1934, he had worked his way up from a job in the sheet-metal department at Lockheed to vice-president of the Curtiss-Wright Corporation.

On arriving in Los Angeles, Lewis went directly to the Beverly Hills Hotel and found Hughes, dressed casually in a sport coat, slacks, and white shirt open at the neck, hunched over a menu, preparing to order lunch. Lewis recalled years later that Hughes took a long time deciding what to eat. “It took him a hell of a time to order it. He just seemed to be so indecisive about it.”¹⁹ After lunch, Lewis and Hughes walked out of the hotel, Hughes carrying his sport coat over his arm, and entered a red Rolls-Royce that Hughes drove to the Culver City plant for a meeting with the scientific staff. Throughout the lunch and short ride, Hughes said nothing about his problems at the aircraft company or the upcoming meeting. Instead, he talked about the engine and propeller business at Curtiss-Wright and Lewis’s work there.

At Culver City, an anxious group of scientists was assembled and waiting. The speech that Lewis was about to make to them was probably the most important one he had tackled since becoming an air force executive. “We just had an explosive situation on our hands,” he recalled later. Hughes Aircraft was the sole source of a “terribly important weapons system… and we had to take all the steps we could to get stability.”²⁰ Looking out at the company’s elite scientific corps, the thoughtful and diplomatic Lewis made his appeal, relying on persuasion and patriotism to keep the scientists at Culver City, at least temporarily. “I just told them how important the work was,” he said, “and we weren’t going to try to demand anything, but that we had to have a little time. You can’t tell people what to do in this country, but I just asked them if they would do nothing for ninety days and give us a chance to try and think the thing through.”²¹

While Lewis spoke Hughes sat silently nearby. The scientists listened to Lewis’s plea for a ninety-day postponement of the resignations, but gave no formal answer. Nevertheless, Lewis left the room with the impression that they would agree to the delay.²² Hughes had the same feeling, which he passed along to a reporter for Aviation Week. “Out of my company of 17,000 men and women only four have left,” he said. “According to my best information, which I believe to be more accurate than any other available, no one else intends to leave the company at this time. There has been no effect on the production or output of defense material from this company and there will be no effect.”²³

The statement was carefully phrased: “No one else intends to leave the company at this time….” Only Hughes, his employees, and the Defense Department knew that he had ninety days to correct the years of mismanagement.

Hughes was in the position he detested most—circumstances beyond his control were forcing a crucial business decision. The man who took two years to make up his mind whether or not to pave a runway now had only ninety days to satisfy the demands of both the secretary of the air force and the aircraft company’s senior scientists. The stakes were not merely financial. In fact, money was not Hughes’s main concern. He was quite comfortable making decisions he knew would cost him millions of dollars. Rather, the stake at Hughes Aircraft was the Hughes name itself. A mass walkout by scientists or the wholesale cancellation of government contracts would tarnish forever the carefully cultivated public image of Hughes as a genius of the aviation industry. He could not allow that.

ANOTHER BOSOM BROUHAHA

As usual, not all of Hughes’s energy and imagination went into the effort to resolve the dilemma at hand. Some was devoted, in a very personal way, to the promotion of Jane Russell’s latest movie, The French Line, which RKO had scheduled for release late in 1953. In this 3-D, Technicolor musical, Hughes had cast Miss Russell in the dubious role of a Texas oil heiress who, believing that men were attracted to her only for her money, sails for Paris with a wardrobe of low-cut costumes.

In addition to a script dominated by double entendres and banal dialogue (about to be married, happily and at last, Miss Russell exclaims that she is excited “as a bull mink in mating season”), the film boasted imaginative photography of the scantily clad Miss Russell in a four-minute bump and grind routine labeled “Looking for Trouble.” Because of the dance scene, the Motion Picture Producers Association of America, Hollywood’s self-censoring body, refused to give The French Line its seal of approval. Hughes, in turn, refused to cut the offending number and prepared to release the picture without the industry’s seal.

St. Louis was selected as the site for the première. On the surface, it may have seemed an odd choice for the opening of a motion picture about an oil-field debutante seeking true love in Paris. But St. Louis possessed a characteristic that fit quite neatly into Hughes’s scenario—65 percent of the city’s 857,000 citizens were Catholic.

Advertisements for The French Line began appearing in St. Louis newspapers the week before Christmas. On December 18, in the St. Louis Post-Dispatch, a two- by four-inch teaser advertisement set the tone for what was to follow. It said simply: “J. R. in 3-D. It’ll knock both your eyes out!” For emphasis, the word “both” was underlined.

Two days later, the advertisement grew to six by eleven inches. It now said: “Jane Russell in 3Dimension—and what dimensions! Howard Hughes presents Jane Russell in The French Line.”

By Sunday, December 27, the advertisement had swelled to eight by eleven inches and a photograph was added, showing Miss Russell in a bathing suit, standing with her arms spread wide, her long legs rising out of a montage of scenes from the movie. This time the caption read: “J. R. in 3-D. That’s all, brother! Howard Hughes presents Jane Russell. The French Line. World premier Tuesday.”

Response to the advertising campaign immediately justified the site. Throughout the Archdiocese of St. Louis, priests read a “special emergency” letter drafted by the Archdiocesan Council of Catholic Men, urging all Catholics to boycott the film because it violated the motion picture industry’s own code as well as the standards of the Legion of Decency.

Readers of the Post-Dispatch were appropriately outraged. “Your paper stooped to a new low when it permitted such advertising as that about ‘J. R. in 3-D,’” a husband and wife wrote the newspaper’s editor. “Your platform states, ‘Never tolerate corruption.’ This type of advertising surely corrupts the people’s minds.”²⁴ Wrote another reader: “The amusement section of your Sunday (God’s Day) edition was swiftly utilized at our house as a liner for the garbage can. Exactly where the giant indecent photo of Jane Russell belongs.”²⁵

When the five-thousand-seat Fox Theater in downtown St. Louis opened its doors at noon on December 29, an overflow audience waited in line. Among the first admitted were officers from the police department’s morals squad and crime prevention bureau, adding credence to a rumor that the film would be seized.

As it happened, the film was not seized, and it was left to newspapers and magazines to place Hughes’s latest cinematic effort in perspective. A St. Louis film critic concluded that “the only crime I could discern was a dramatic one, the only arrest I would recommend would be for wasting the public’s time. The police would not, of course, investigate the fraud being committed—that of continuing to exploit Miss Russell as an actress.”²⁶ Newsweek said the film was “more to be pitied than censored.”²⁷ And Time described it as “long on notoriety and short on entertainment… more notable for poor taste than salaciousness.”²⁸

Even Miss Russell, a sometime Sunday school teacher who had risen to fame in The Outlaw on similar publicity a few years earlier, seemed embarrassed by it all. “There’s no reason for those scenes and they ought to be cut,” she said. “I don’t like the accent on sex and never have. Sex has its place, and I’m no prude, but a thing like this doesn’t help anyone’s career.”²⁹

Meanwhile, the churches continued to play into Hughes’s hands. On the Sunday following The French Line première, a stern warning was issued to parishioners of all St. Louis Catholic churches. This time the message came from the Most Reverend Joseph E. Ritter, archbishop of St. Louis. “Dearly beloved,” the archbishop wrote, “since no Catholic can with a clear conscience attend such an immoral movie, we feel it is our solemn duty to forbid our Catholic people under penalty of mortal sin to attend this presentation.”³⁰

The provocative poster of Jane Russell from The French Line that inflamed St. Louis. United Press International

The Catholic Legion of Decency gave the motion picture its “C,” or condemned, rating, and the Better Films Council of Greater St. Louis expressed displeasure with the movie. Far more interesting than all the protests, though, was the lack of any support either for Hughes or for his picture. Even opponents of censorship within the industry maintained a discreet silence on The French Line. They recognized that this was not a case of a loner championing free expression, but rather a case of rank opportunism.

As one unidentified industry executive told Variety, “The code has been defied before, but for the most part there was some principle involved. In the Hughes matter I fail to see how principle enters into it. I don’t quarrel with nonconformists generally, but in this case Hughes is trying to make a buck with his picture at the cost of tremendous industry prestige and at the risk of bringing new censorship upon us far more burdensome than we’ve ever had before.”³¹

THE COUNTERFEIT CHARITY

But The French Line was only a sideshow to Hughes’s struggle for a solution at Hughes Aircraft. Much as he hated making decisions under pressure, this time Hughes rose to the occasion. As the ninety days ran out at Culver City, Hughes used the crisis to solve the one business problem that had vexed him more, and longer, than any other—his ever-spiraling federal tax bill.

The production of crude oil in the United States reached a high of 6.5 million barrels a day in 1953. Oil-production records were set in twelve states. Forecasts called for a 5.1-percent growth in demand for petroleum products in the coming year. There were 49,279 oil and gas wells that would be completed across the country in the coming year, an increase of 7.5 percent over the previous year. In short, the oil business was booming, carrying the Hughes Tool Company along with it as the chief supplier of oil-drilling bits and equipment.

As profits swelled, more of Hughes’s millions went to the Internal Revenue Service. Hughes desperately needed an accounting device to cut his federal income-tax payments. Hughes Tool already had claimed some questionable deductions on its 1952 federal income-tax return, the kind of deductions that might be picked up in a close audit and result both in additional taxes and an interest penalty.

It was against this background of an aircraft company torn by bitter revolt, its top scientists threatening to bolt to competing companies, the military pressuring him to straighten out his business affairs, and a soaring federal income-tax bill, that Howard Hughes devised an intricate and superbly effective scheme: he would go into the charity business.

On December 17, 1953—the ninetieth day of the ninety-day deadline set by Air Force Secretary Talbott—Hughes’s attorneys traveled to Delaware, where they filed legal documents with the Delaware secretary of state’s office setting up two new corporations. One was the Hughes Aircraft Company, which now would be a separate corporation independent of the Hughes Tool Company. The second company was called the HHMI Corporation. The purpose of HHMI, as stated in its incorporation papers, was “the promotion of human knowledge within the field of the basic sciences and its effective application for the benefit of mankind.”³²

The next day, someone in the Hughes organization, probably Hughes himself, decided that the name—the HHMI Corporation—sounded too much like a business, which it was, rather than a charity, which it was supposed to be. And so the name was changed to the Howard Hughes Medical Institute. Its purpose was also amended by adding that the institute’s specialty would be “principally the field of medical research and medical education.”³³ Howard Hughes was the sole trustee of the medical institute—a most unusual arrangement for a legitimate charity, which normally would vest control in a broad-based group of directors.

Once the institute had been founded, Hughes turned his attention to the news release that would properly set forth his emergence as a philanthropist. For several days early in 1954, working on yellow legal tablets in a suite at Las Vegas’s Flamingo Hotel, Hughes laboriously drafted and polished the document, then had it typed on hotel stationery. Still not satisfied, he began to write in changes. He had originally intended to put a price tag on the value of his donation, but he now decided against that, writing in a phrase that his initial contribution would consist “of a substantial segment of the Hughes Aircraft Company.”³⁴ Finally he was satisfied. Having drafted a release that was now suitably vague about his gift, Hughes had the statement distributed.

On January 10, 1954, under a Los Angeles dateline, the release announced the creation of a nonprofit charitable institution to “provide millions of dollars for medical research to combat disease and human suffering.” The new Hughes foundation represented “years of planning by the famed flyer-industrialist-motion picture producer,” who had “for 25 years provided, in the event of his death, for the creation and endowment of a medical research institute, and that five years ago he decided to start it during his lifetime.”³⁵ Although short on detail, the ten-paragraph release generated favorable news stories across the nation. The true intent of the medical institute went unnoticed. Financial transactions at the base of the Hughes “charity” involved one man—Howard Hughes, of course—and three corporations: the Hughes Tool Company (represented by Hughes, its sole stockholder and president), the Hughes Aircraft Company (represented by Hughes, its president), and the Howard Hughes Medical Institute (represented by Hughes, its sole trustee).

On December 31, 1953, the last day on which Hughes and his tool company could take steps to reduce their taxable income for that year, the following took place:

• The Hughes Tool Company gave to the Howard Hughes Medical Institute the patents, trademarks, goodwill of the tool company’s aircraft division, and all the stock of the new Hughes Aircraft Company. The declared value of the gift was $36,463.³⁶
• The tool company then sold to the medical institute certain assets of its aircraft division—inventories, receivables on government contracts—for $74,618,038.³⁷
• The medical institute—the new Hughes “charity”—had no money, so to pay for those assets the institute assumed $56,574,738 in liabilities of the tool company’s aircraft division.³⁸
• The medical institute then signed a promissory note to the tool company for the $18,043,300 difference between the assets it bought and the liabilities it assumed. The note ran for three years and carried an annual interest rate of 4 percent.³⁹
• The tool company also leased to the medical institute certain real estate and fixed assets of the aircraft division—the land and buildings at Culver City. The lease also provided that the medical institute would pay the tool company $26 million over the ten-year, six-month life of the lease.⁴⁰
• The medical institute, in turn, subleased the same Culver City land and buildings to the newly created Hughes Aircraft Company. The sublease provided that the aircraft company would pay $33.6 million to the medical institute during the same ten-year, six-month period.⁴¹

The net effects of Hughes’s creative accounting were these:

Howard Hughes, multimillionaire, had created a charity without donating a single penny in cash or in stock that paid dividends, or any real estate. The charity started life with a debt of $18,043,300 to the man who founded it, meaning that Hughes would collect millions of dollars in interest payments from his own charity. The agreements showed that Hughes had no intention of giving money to his medical-research institute for at least a decade, if ever. Instead, the institute’s only source of income would be the payments from the aircraft company for the real estate and fixed assets subleased to the aircraft company.

At the same time, the Hughes Tool Company could deduct its lease payments to the medical institute on its federal income-tax return. Every dollar the tool company saved in taxes was another dollar for Hughes. Even better, the aircraft company’s cost of subleasing buildings from the medical institute could be passed along to the American taxpayer. The $33.6 million sublease represented an additional cost of doing business, a cost that Hughes Aircraft could tack on the bill it sent to the United States government for work on military contracts—its only source of income.

In short, Hughes had created the ultimate charity: the American taxpayer was to pick up the entire bill for the Howard Hughes Medical Institute, while Hughes basked in the warm glow of testimonials to his philanthropy and quietly collected money from his own charity.

It was a bold stroke that solved Hughes’s many problems. With the organization of the medical institute, the tool company gained an immediate $2-million deduction on its federal tax return, the first of a series of substantial tax benefits over the coming years. The medical institute now owned 100 percent of the stock of the Hughes Aircraft Company and nothing else. Defense officials in Washington would think twice before canceling the contracts of a company owned by a charity devoted to medical research “for the benefit of all mankind.” The aircraft company’s executives, likewise, could hardly demand stock options from a charity. Finally, over and through it all, Hughes retained complete control. He was the sole trustee of the medical institute and the president of the aircraft company.

There remained only a nagging technicality. In order for this house of cards to stand, Hughes needed a ruling from the Internal Revenue Service designating the Howard Hughes Medical Institute a tax-exempt charitable organization, like the Ford Foundation or the Boy Scouts or the YMCA.

By the fall of 1955, however, the Hughes organization sensed trouble. Rumor had it that the IRS would rule against the medical institute’s application for tax exemption. Such a decision not only would have dire consequences for Hughes, but also would reflect unfavorably on his beneficence, exposing the medical institute as something less than a charity.

It was time for another public-relations blitz. In between visits to a Hollywood nightclub and an Arizona dude ranch, about a hundred newspaper and magazine reporters were escorted through Hughes Aircraft plants in Culver City and Tucson, the first time that Hughes had opened those doors. Hughes was not present, but his spokesmen cheerfully trumpeted the message: Hughes, they said, believed that, finally, it was “time for the public to have some information on the electronic systems.”⁴² The plants had been closed to outsiders in the past because Hughes had “not wanted to talk about… the company until he could point to a consistent record of achievement.”⁴³

The results of the junket were predictable. Newspapers and magazines burst forth in praise of the electronic marvels at Hughes Aircraft. The company’s accomplishments were genuine, even if achieved despite Hughes’s management. And why dwell on Hughes Aircraft’s near collapse two years earlier? It seemed so long ago. As Hughes himself explained, “I know about the important things. What’s the measure of this outfit? Our internal problems? Or is it the customer’s satisfaction?”⁴⁴ The answer to Hughes’s rhetorical question was provided by Time magazine: “By all signs, the United States Air Force, Howard Hughes’ biggest customer, was eminently satisfied.”⁴⁵ Anyway, Time went on, “profits from Hughes Aircraft go into the Howard Hughes Medical Institute for research.”⁴⁶

Stories about Hughes Aircraft and the good works of the Howard Hughes Medical Institute notwithstanding, the IRS informed Hughes on November 29, 1955, that it was denying his request to class the medical institute as a tax-exempt organization. IRS agents had concluded that Hughes’s self-styled charity was “merely a device for siphoning off otherwise taxable income to an exempt organization, and accumulating that income.”⁴⁷

Hughes was furious. He ordered Noah Dietrich to look into the possibility of “revoking the gift to the Institute.”⁴⁸ Dietrich advised Hughes that that could not be done.⁴⁹ In time, Hughes chose a wiser course.

The IRS ruling was a setback, but the decision could be appealed within the agency and then, if necessary, to the federal courts. To handle the delicate negotiations with the IRS, Hughes turned to the well-known and well-connected Washington law firm of Hogan & Hartson. The senior partner, Nelson T. Hartson, had been solicitor for the Internal Revenue Bureau in the early 1920s. Another partner, Seymour S. Mintz, who had first worked in the office of the undersecretary of the Treasury and then as a special attorney in the Internal Revenue Bureau during the late 1930s and early 1940s, was one of Washington’s leading tax lawyers.

Hogan & Hartson had just completed a sensitive assignment for Hughes, one unrelated to tax law. The bachelor industrialist wanted information about a man who was dating his sometime girlfriend, Jean Peters. Back in 1947, Hughes had given Jean a diamond and sapphire ring. At the time, the twenty-year-old actress described their relationship as “serious.” She allowed, though, that both wanted to wait a year before marriage and that Howard “wants to be very sure that when he does marry, it’s for keeps.”⁵⁰

Seven years later, Hughes was still trying to decide whether Jean would be for keeps. She was seeing another man, and Hughes suspected that the suitor might be a secret government agent. At Hughes’s request, Hogan & Hartson retained the services of a private investigator, a former FBI agent with close ties to both federal law-enforcement authorities and the Washington intelligence community. His name was Robert Aimee Maheu.

The law firm kept the identity of its client a secret in the beginning, and as Maheu remembered some years later, “It was a very insignificant assignment of determining whether a certain individual was engaged in undercover work for the United States government. It pertained to an individual who was then either courting or subsequently married Jean Peters.”⁵¹ No doubt the assignment was trivial, but the road it opened to Maheu was a rewarding one.

POLITICAL INSURANCE

While the Hogan & Hartson lawyers were pleading the case for a tax-exempt medical institute, their client was covering his bets by buying some very potent political insurance. He needed all the help he could get. In its first full year of operation, the medical institute reported income of $3,609,785, all from Hughes Aircraft, of course. Of that amount, the purported charity returned $3,024,517, or 84 percent of its total income, to Howard Hughes. Exactly $43,348—or 1 percent of its income—was allocated for medical-research fellowships.^52*

The physician Hughes had placed in charge of the institute’s medical work was Dr. Verne R. Mason, the Hollywood doctor who treated him after his near-fatal 1946 plane crash and who had been supplying him ever since—apparently without any legitimate medical reason—with narcotics. In the beginning, Dr. Mason furnished Hughes with prescriptions for Empirin Compound No. 4, a pain-killing drug that contains codeine. In time, Dr. Mason supplemented the Empirin with pure codeine, one-grain tablets that Hughes consumed in growing quantities, building up a low-level addiction.

In March of 1956, Hogan & Hartson lodged a formal protest with the IRS. Months passed with no word from the agency; in an election year the Washington bureaucracy makes few large decisions. That November, Dwight D. Eisenhower and his running mate, Richard M. Nixon, were swept into office for another term, capturing 57.4 percent of the popular vote—the largest winning margin in twenty years.

For Nixon, a major beneficiary of Eisenhower’s broad popular appeal, everything was going just right in Washington. But for the vice-president’s brother, Francis Donald Nixon, everything was going wrong in Whittier, California. Donald Nixon was striving to turn Nixon’s Inc., his money-losing, mini-conglomerate composed of a supermarket and three restaurants that specialized in Nixonburgers, into a profitable business.

Shortly before the November election, Donald Nixon had tried to raise $300,000 in a public stock offering. To stir up interest, Nixon’s broker sent a letter to leaders of sixty-five Young Republican Clubs in the Los Angeles area urging them to “mention the stock offering at your next meeting.” The broker’s letter concluded with a warm political endorsement: “My best personal wishes to you for what we know will be a very successful campaign.”⁵³ The financial plan collapsed before the election when copies of the letter were sent anonymously to California newsmen who then broke the story.

Three months later, with his brother secure in the vice-president’s office for another four years, Donald Nixon arranged a $205,000 loan to rescue his failing business. The date was December 10, 1956, and the lender was Hughes, or more precisely, the Hughes Tool Company.

Hughes hardly ever carried out his own schemes. This time the financial transaction was handled by a Los Angeles attorney, Frank J. Waters, once a registered lobbyist for the Hughes Tool Company and a former member of the California legislature who first went to work for Hughes in 1944. Noah Dietrich made the cash available by transferring $205,000 from a Canadian subsidiary of the Hughes Tool Company, and Waters handled the rest.

The proceeds of the $205,000 loan went first to Mrs. Hannah M. Nixon, the aged mother of the Nixon brothers. She, in turn, loaned $165,000 to Nixon’s Inc. and used the remaining $40,000 to pay off an earlier bank loan.

There was no individual responsibility for repayment. If for some reason Nixon’s Inc. was unable to repay the loan, no member of the Nixon family would be held responsible for it. Instead, the loan was secured by a mortgage on a lot the Nixons owned at Santa Gertrudis and Whittier Boulevards in Whittier. The lot had been the site of the Nixon family home, purchased back in May of 1923 by Francis A. and Hannah M. Nixon, and then that of a store operated by the vice-president’s father, and still later Donald Nixon’s first drive-in and gift shop.

Donald Nixon had just signed an agreement with the Union Oil Company to build a service station on the lot and lease the business to the oil company.^* But on the date Donald Nixon obtained his loan from Hughes, the Whittier lot had an assessed value for tax purposes of $13,000.⁵⁴ Los Angeles County assessments normally equalled about one-fourth of the fair market value. The Nixon family had obtained a $205,000 loan from Hughes by pledging as collateral a vacant lot worth no more than $52,000.

But not even the infusion of Hughes’s cash could save Nixon’s Inc. By February of 1957, concern for the fortunes of Donald Nixon had led to a meeting of Hughes associates at Romaine Street, where it was agreed that an informal management committee would be set up to save the restaurants. In attendance were, among others, Noah Dietrich, Frank Waters, and Phillip Reiner, a certified public accountant who worked for Waters and his law partner, James J. Arditto. After the meeting, Waters called the office of the vice-president and advised a Nixon aide of Hughes’s efforts on behalf of the Nixon family.

Less than a month later, the Internal Revenue Service had a change of heart toward the Howard Hughes Medical Institute. The IRS informed Hughes on March 1, 1957, that it was reversing its original decision. The Howard Hughes Medical Institute would now be classified as a tax-exempt charitable organization. At last, Hughes was officially, legally, in a charity business worth tens of millions of dollars to him, both directly and indirectly.

Donald Nixon did not fare nearly so well. Nixon’s Inc. collapsed before the year was out and he went to work for the Carnation Milk Company. When he filed for personal bankruptcy in 1960, he listed debts of $206,937.43 and assets of $1,250.⁵⁵ His debts came uncannily near to matching the $205,000 loan from Howard Hughes. The Hughes loan was never repaid, but the Whittier lot was secretly signed over to the Hughes organization to avoid the unpleasantries of foreclosure.

Details of the Hughes loan to Donald Nixon were made public in the closing days of the 1960 presidential race between Richard Nixon and John F. Kennedy, and may well have contributed to Nixon’s narrow defeat. But the possibility of a connection between the Hughes loan and the IRS’s simultaneous about-face on the tax status of the Howard Hughes Medical Institute was never drawn. Nor could it have been, for the IRS carefully kept secret all its dealings with Hughes. To this day, the IRS has refused to make public the rulings and other documents relating to its initial decisions rejecting the medical institute’s request for tax exemption, its subsequent reversal of that decision, and other special considerations it subsequently granted to the medical institute. Interestingly, one of the secret rulings Hughes received came directly from the IRS commissioner’s office in September of 1959. At the time the commissioner was Dana Latham, who before taking over the top IRS post had been a prominent tax lawyer and a senior partner in the Los Angeles law firm of Latham & Watkins. The law firm eventually represented Hughes Aircraft Company, whose stock was owned by the Howard Hughes Medical Institute. Richard F. Alden, Latham’s son-in-law and a partner in the firm, became general counsel for Hughes Aircraft Company.^*

If there was one task in which Hughes delighted, it was selecting the site for one of his enterprises. It was a duty that he never delegated. In fact, no Hughes executive could ever on his own acquire land or authorize construction of a building. Hughes reveled in putting advisers to work compiling lists of potential sites, then painstakingly studying each to weigh its advantages and disadvantages. He loved to spend hours analyzing maps and reports and, after making his decisions, he thrived on the opportunity to manipulate politicians, the press, and the public while embellishing his image as a benefactor of mankind. The way he went about announcing the site for his new medical institute was typical.

Once the papers had been signed creating the medical foundation, Hughes advisers recommended locations—cities in California, Texas, and Florida, among other states. Eventually, Hughes selected Florida, but rather than make a straightforward announcement, he decided to build up suspense about his plans and reap some favorable publicity along the way.

While Hughes was visiting Miami early in 1955, rumors began circulating there that he planned to make major investments in southern Florida. Nothing was official, but the news media were led to believe that Hughes was about to move his motion-picture operations, his oil-tool company, or his aircraft plant to Florida. By spring, the media were being cautioned by Hughes’s press aides that any premature publicity would jeopardize a “big enterprise.”⁵⁶ After a series of private conversations with Hughes, Florida governor LeRoy Collins announced that he had a commitment from Hughes to locate “two gigantic industries” in Florida, although the nature of the industries was left to the imagination.⁵⁷ Hughes also told Collins he intended to build a magnificent medical-research complex in southern Florida that would have no equal. As Collins recalled:

“He said that he wanted to build something that never had been built in the world. He wanted to build a facility that could attract the finest brains in the world in the whole field of medical science, research, and everything else. He wanted unusual and attractive living accommodations for people who came there. He wanted all the sports facilities. He was going to make it a place that these people wanted to go. They’d have all the best equipment to support them and he was going to pour all his worldly goods into that facility. And it was just going to be something that would be of worldwide significance and importance and would be a perpetuation of his name on something that he felt was about the most noble thing that could be done. Really a grand concept, in all the ways that grand may be used.⁵⁸

On February 2, 1956, the Miami Herald carried a page-one story reporting that the area might become the location of the largest heart-research center in the world, a Hughes project of “more than $100 million.”⁵⁹ The source of the story was Dr. Louis N. Katz, director of cardiovascular research at Michael Reese Hospital in Chicago and former president of the American Heart Association, who had spoken at a kickoff dinner of the 1956 Greater Miami Heart Fund campaign.

Two months later, a Hughes spokesman made it all official at a press conference in Governor Collins’s office in Tallahassee. The spokesman was Delbert E. Webb, co-owner of the New York Yankees, longtime Hughes associate, and multimillionaire head of a construction company that Hughes employed.

Reading from a statement approved by Hughes, Webb announced: “The Howard Hughes Medical Institute has already made its beginning in Florida. It recently acquired by lease a part of the Richmond Naval Air Station south of Miami, and will conduct some of its research there. Officers’ quarters will be made into suitable laboratories, administrative offices, lecture hall, conference rooms, library, and dining facilities.”⁶⁰ And the medical institute, Webb added, was only the start of Hughes’s program in Florida. Coming next would be a huge aircraft-manufacturing plant—at a site to be selected—employing thousands of persons.

So there it was, finally. In the year gone by it had been variously rumored that Hughes intended to move his aircraft company, his oil-tool company, and his motion-picture studio to Florida. A noted cardiologist had announced that Hughes would build the world’s largest heart-research center in Florida. The governor had announced that he had a commitment from Hughes for two gigantic new industries. And, last, the word from Hughes himself—he was going to locate his medical institute and build an airplane factory in Florida. The image of Hughes—the mystery man who would provide thousands of jobs for Florida residents, the benefactor of the disease-ridden—was firmly etched in the public consciousness.

In the first critical years of the medical institute—when image was all-important in securing favorable action by the Washington bureaucracy—Hughes had devised a scheme to overcome one obstacle that would have proved insurmountable to a less imaginative or resourceful man. That was: how to enlist highly regarded members of the American medical community in his cause and obtain their public endorsements of his good works without personally contributing a penny in cash to his charity. The answer was a subtle blending of the illusion of Hughes money, the aura of the Hughes name, and the inviolate Hughes code of secrecy. There was a Hughes maxim which held that people would give him their time, their talents, and their loyalty in exchange for even the slimmest possibility of financial reward.

Hughes needed only an existing medical organization to give his charity instant credibility. At the University of Miami he found a candidate, a recently established medical school in need of financial support and the public recognition that generates such support. Dr. Homer Marsh, the dean of the medical school at the time, remembers the occasion well. “We wanted a formal affiliation,” he said, “because we were all selfish and we wanted to cash in on Hughes’ name to attract more support for the medical school. But a formal affiliation was never made. We had visions of large financial support that didn’t materialize.”⁶¹

There was no reason for Dr. Marsh to disbelieve Hughes. After all, Hughes had made the medical school much the same promise that he had made the IRS. In a report to the tax agency in 1957, Hughes stated: “Anticipating that the institute’s principal facilities will be constructed in the Miami area, the institute has thoroughly studied the potentialities of the area as related to the future programs of the institute. Of particular significance are a more permanent and closer affiliation with the University of Miami School of Medicine.”⁶²

After the IRS exempted his medical institute from the tax laws, Hughes never built anything in Florida. He did not build the medical institute facilities he described in his report to the IRS, or the sprawling research complex spread over sixty acres pictured by Miami newspapers, or the world-renowned medical institute he described to Governor Collins, or the world’s largest heartresearch center envisioned by Dr. Katz.

Instead, Hughes rented the top floor and part of the third floor of the four-story Medical Arts Building on the University of Miami campus as the headquarters for the Howard Hughes Medical Institute. There, researchers (the institute called them “medical investigators”) conducted their studies using patient data from nearby Jackson Memorial Hospital. The researchers taught occasional classes at the University of Miami School of Medicine and the medical school staff was given access to the institute’s library. In addition, each year modest grants were awarded to researchers at half a dozen medical schools around the country. In short, the institute was a nickel-and-dime operation—in 1955, research grants and fellowships totaled $122,611, or $599,120 less than the institute gave Hughes as interest on his loan—and nothing like the wealthy industrialist’s grandiose promises.⁶³ It was a story that went unnoticed. A wall of secrecy had descended around the Howard Hughes Medical Institute and Hughes had moved on to other pursuits.